Withdrawal of Personal Income Tax exemptions: Govt to hold tough negotiations with IMF, says Shaukat Tarin

ISLAMABAD: Federal Minister for Finance and Revenues Shaukat Tarin said on Tuesday that the government would hold tough negotiations with the IMF for withdrawal of Personal Income Tax (PIT) exemptions and bringing changes in its existing slabs as wish list could not be implemented in totality.

"We negotiated hard with the IMF in the past and it would be done again as the wish list cannot be implemented in totality," Federal Minister for Finance Shaukat Tarin replied when asked about submission of PIT Bill before the Parliament as demanded by the IMF after attending a ceremony for announcing Rs53 million prizes among 1,007 winners through balloting on QR Code Receipt generated through the Point of Sale (POS) here at the FBR headquarters on Tuesday night.

To another query about increases in POL prices, he replied that the prices would be revised upward but the exact decision would be conveyed late at night. It is relevant to mention here that the IMF in its latest recent review report had written that the government would kick-start processing of PIT Bill before the Parliament by end of February 2022. In the past, the IMF asked Islamabad to fetch Rs160 billion through PIT reforms but Minister for Finance Shaukat Tarin had refused to implement it on the occasion of the last budget 2021-22.

Earlier, in his address at the POS prizes announcement ceremony, Shaukat Tarin said that Pakistan could not achieve inclusive and long-term growth with the existing low level of tax-to-GDP ratio standing at 10 percent.

"Pakistan has failed to achieve long-term sustained growth mainly because of three major reasons including low savings rate, the yawning gap between exports and imports and low agriculture productivity," he said and added that for achieving over 6 percent growth, the government would have to jack up the tax-to-GDP ratio up to 20 percent.

China's tax-to-GDP ratio stood at 40 percent while Turkey and Thailand also achieved a higher tax-to-GDP ratio, so Pakistan would have to overcome its faultlines to improve its taxation, he said.

He warned that the government would take action against those who deducted General Sales Tax (GST) from customers but pocketed the deducted amount. Although, he did not want any kind of harassment but appealed to all retailers to deposit the deducted amount into the national kitty.

He lamented that out of 220 million population, there were only 3 million return filers and one million filed returns just for the purpose of avoiding charging of full withholding taxes. So there are only 2 million taxpayers. He said that Germany’s finance minister told him that there was no representation without taxation but Pakistan’s culture was quite different. Pakistan’s tax base was quite low and the country was lagging behind. There should be only two major taxes, including Income Tax and second consumption tax known as GST. “There is no short cut and there is a need to do away other taxes such as in the shape of different withholding taxes,” he added.

Dwelling upon the GST, he said that the GST should be imposed as Value Added Tax (VAT) where the supply chain starting from manufacturers, wholesalers and retailers should be brought into the tax net. Finally, the tax is charged from customers on the basis of consumption but he admitted that the supply chain was broken halfway. The retailers do not pay the taxes fully, he added.

Now the FBR, he said, integrated tier-1 retailers with POS machines, and all customers must get integrated genuine receipts from them.

The total sale of retailers stood at Rs20 trillion out of which the captured sale was just 20 percent or Rs3 to Rs4 trillion only and the country’s tax-to-GDP ratio was just hovering at 10 percent.

The country’s current expenditures stood at 12 to 14 percent of GDP, so the tax revenues cannot fulfill even expenditure requirements. With the help of non-tax revenues, he said that the country could meet just its current expenditures and the country cannot achieve its development objectives in such a situation. The country’s growth target of 6 to 8 percent on annual basis cannot be achieved with a low tax-to-GDP ratio, he said and added that the tax-to-GDP ratio would have to be doubled from the existing 10 percent to 20 percent.

He said that the FBR was going to cross Rs6 trillion mark during the current fiscal year but added that the size of the economy also stood at Rs60 trillion.

The Chairman FBR, Dr Mohammad Ashfaque, said on the occasion that the number of POS generated valid receipts had gone up to 153,000 in January 2022 against 43,000 in December 2021. Mohammad Aslam from Karachi won the bumper prize of Rs one million while two individuals won Rs500,000 prize each through balloting. One thousand customers won prizes of Rs50,000. There are four customers who won prizes of Rs 250,000 each.